Financial Management for Decision Makers 9th Edition provides students with a unique focus on the practical application of financial management and its role in decision making. Covering topics such as financial planning, making capital investment decisions, and financing a small business, it provides an ideal introduction to the world of financial management. A new chapter on international aspects of financial management, which explores the benefits and problems associated with internationalisation and the management of foreign exchange risk Updated explanations throughout including greater coverage of behavioural finance and share valuation methods Increased number of activities, giving more opportunities to engage with the key concepts Updated Real World examples, which provide connections between the theory and practice of financial decision making. Now in its ninth edition, Financial Management for Decision Makers provides students with a unique focus on the practical application of financial management and its role in decision making. This text is ideal for undergraduates from a non-accounting or non-finance discipline taking an introductory module in financial management. It is also suitable for postgraduate students enrolled on certificate and diploma courses in financial management, as well as those enrolled on Diploma in Management Studies and MBA programmes.
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ISBN All rights reserved. This ePublication is protected by copyright. Permission is hereby given for the material in this publication to be reproduced for OHP transparencies and student handouts, without express permission of the Publishers, for educational purposes only.
Pearson Education is not responsible for the content of third-party internet sites. It assumes no previous knowledge of the subject and recognises that students using the text may come from a wide variety of backgrounds.
The text, therefore, tries to avoid technical jargons and does not assume a high level of numerical ability from students. The text has been class tested by students on various courses and I have modified and refined the material to take account of their comments. In writing this eighth edition, I have also taken into account the views of lecturers who have used the text. The text aims to encourage an active approach to learning by providing activities and selfassessment questions at appropriate points in the text.
This is designed to stimulate thought concerning particular issues and to give the reader the opportunity to test his or her understanding of the principles covered. Fully annotated solutions are provided to activities and self-assessment questions in order to give the necessary feedback. The structure of the text allows the tutor to deliver the subject in a number of ways.
The text can be used as recommended reading for a traditional course based on lectures and tutorials. There are review questions and exercises at the end of each chapter, which can be used as the basis for tutorials. Answers to the review questions and to three of the exercises are given at the end of the text, and answers to the remaining exercises are given in this manual for tutors. The text could also provide the basis for a distance-learning approach for part-time or offcampus students.
For these students, the interactive nature of the book may be extremely useful where access to a tutor is restricted. The text can also be used as the basis for an open learning approach for full-time, campus-based students. I have used this method successfully at Plymouth Business School.
Accounting surgeries can also be provided to give students the opportunity for one-to-one help with any problems they face. For full-time students, this will often be covered in one academic year two semesters.
For students that are only studying a one-semester course in financial management it will be necessary to adopt a selective approach to the chapters to be studied.
It may be useful, for example, to concentrate on those chapters concerned with investment appraisal, financing and dividend policy in the time available. However, the selection of chapters should be determined by the objectives of the course and the background of the students. There is a website to support this text, which contains multiple choice and short answer questions, exercises, and case studies along with solutions. There are also PowerPoint slides for lecturers.
I hope that you and your students will find the text both accessible and interesting. I welcome any suggestions that you may have on how the text can be improved. Peter Atrill April Solution to Exercise 2. Given the low profit margins and weak cash flows of the business, this obligation can provide a real threat to the viability of the business. A further problem facing the business is the pattern of receipts and expenditures that it has. The business must pay large amounts out at the beginning of the season for advertising.
As bookings have not been received at this point, the business is reliant on a large overdraft to meet these obligations. In the event that the bank withdraws its support the business would be in grave difficulties.
It would be advisable to seek an injection of long-term funds to put the business on a sounder footing. The profit is small in relation to the sales revenue and expenses of the business. A slight increase in expenses, without a corresponding increase in sales, could wipe out the projected profits.
Sales revenue 1. Although variable costs are reduced, fixed expenses are increased, thereby increasing operating gearing. Other things being equal, this would increase the degree of operating gearing. However, as sales increased by 20 per cent, the degree of operating gearing has reduced slightly. This is because the impact of operating gearing becomes less pronounced the further away from the point at which sales less variable costs equal the fixed costs.
By financing the new bottling line through the use of loan notes, the financial gearing of the business is increased. This makes profits available to ordinary shareholders more sensitive to changes in operating profits. We can see a significant increase in the degree of financial gearing in Year 8. The slight decrease in the degree of operating gearing is more than offset by the increase in the degree of financial gearing and so the degree of combined gearing has also increased significantly.
Thus, returns to shareholders become more sensitive to changes in sales. However, the projected cash flow statement reveals that this will not be achieved. It may be possible to delay the refurbishment programme that is included in the projections or to obtain an injection of funds from the owners or other investors. It may also be possible to stimulate sales revenue in some way. However, there has been a decline in the sales since the end of July and the November sales is approximately one third of the July sales.
The reasons for this decline should be sought. The inventories level will fall below the minimum level for each of the last three months. However, to rectify this situation it will be necessary to purchase more inventories, which will, in turn, further exacerbate the cash flow problems of the business. The projected income statement reveals a very low profit for the period. The business should look carefully at its pricing policies and its overhead expenses.
The administration expenses, for example, absorb more than one quarter of the total sales turnover. Any reduction in overhead cash expenses will have a beneficial effect on cash flows. Similar calculations apply for subsequent years. The above ratios reveal that Conday and Co. Ltd is profitable.
In particular, the return on ordinary shareholders funds and ROCE ratios seem to be high in relation to the returns achieved by more secure forms of investment such as government securities. However, whether this level of return is sufficient in relation to the risks involved is difficult to judge from the information available.
The settlement period for trade receivables seems very high, which may be due to the nature of the business. The inventories turnover figure also seems high. This may indicate a need also to improve inventories control procedures. At present, the business has a large bank overdraft and so major improvements in inventories control and credit control procedures may have a significant effect on both the liquidity and the profitability of the business.
Given the high level of bank borrowing, it is difficult to understand why such a high proportion of the profit for the year was distributed in the form of dividend. This is not a very prudent policy. The sales revenue to capital employed ratio seems quite low.
This is due, at least in part, to the high levels of inventories and trade receivables that are being carried. Although the business is profitable, there are some doubts as to the quality of its management.
The business has high levels of inventories and trade receivables and a large overdraft. It is possible that better management would not have allowed this situation to arise. It is possible, too, that better management of existing assets would remove the need for external sources of funds for expansion. Would it be used to finance even higher levels of inventories and trade receivables without there being a corresponding increase in sales revenue? These ratios reveal, what seems to be, a low operating profit margin in each year.
The gross profit margin, however, is quite high in each year, suggesting that the business has high overheads. There was a slight increase of 1. As a result, the operating profit margin increased by only 0. The low operating profit margin is matched by a seemingly rather low sales revenue to capital employed ratio in both years. The combined effect of this is a low return on capital employed ratio ROCE in both years. The ROCE for each year is lower than might be expected from investment in riskfree government securities.
This must be unsatisfactory since investing in a business tends to be quite risky. The inventories turnover period and settlement period for trade receivables have both increased significantly over the period.
The settlement period seems to be high and should be a cause for concern. Although in absolute terms sales revenue increased during , operating profit fell quite sharply. The directors should be concerned at the low level of profitability and efficiency of the business.
In particular, an investigation should be carried out concerning the high level of overheads and the higher investment in inventories and trade receivables. This only provides a rough approximation of the trade payables settlement period.
A supplier seeking to sell a substantial amount of goods to the business will be concerned with both liquidity and longer-term viability where there is a continuing relationship as measured by profitability ratios. The supplier will also be interested in the average time taken by the business to pay its current suppliers. The liquidity ratios reveal an apparent improvement over the two years. However, for a manufacturing business, the liquidity ratios seem low and the supplier may feel some concern.
The increase in inventories over the period has led to a greater improvement in the current ratio than in the liquid acid test ratio. The settlement period allowed to credit customers trade receivables has increased substantially in This may be a deliberate policy. However, if this is the case, the effect of a more liberal credit policy has not proved to be very successful as there has only been a slight increase in sales revenue in
Financial Management for Decision Makers
View larger. Request digital exam copy. Request print sample. Download instructor resources. Alternative formats. Now in its eighth edition, Financial Management for Decision Makers provides a unique focus on the practical application of financial management and its role in decision making. With its innovative, open—learning approach, it provides an ideal introduction to the world of financial management for students.
Financial Management for Decision Makers 9th edition
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